Peak Oil Article

HIGH GAS PRICES?B-B-B-BABY, YOU AIN’T SEEN NOTHIN’ YETAre High Gas Prices the First Sign of "Peak Oil" and Coming Shortages?

Peak Oil Article

FOREWARD

Hey, we heard a rumor that gas stations will soon be installing systems to vacuum your car and your wallet at the same time. Yeay efficiency!

Most of us are aware that
high gasoline prices are a problem these days. Many people may also be aware that the price of a barrel of crude oil is also quite high. We have a tendency to try to put the blame for these petroleum miseries on hateful
oil-producing nations; greedy oil companies and manipulative commodities traders; rising consumption in China and other developing countries; or maybe even on environmentalists who attempt to thwart extraction of new sources of oil in wilderness areas.

To be fair, there are some effects from all of these factors, but the much larger truth is that global petroleum supplies have gotten very tight relative to demand. For the most part, today's oil prices simply reflect the law of supply and demand. But that's just the tip of the problem. The real story is about "peak oil"—the point in history when global petroleum production will peak—forever. Once oil supply can no longer keep up with oil demand, an economic shockwave will hit us and wreak havoc with our modern economies, which rely on abundant oil to support never-ending growth.

The official line from our political leaders and government scientists is that there's enough remaining oil that the peak won't hit for several decades. Many geologists and other people who study the field think the evidence says we are at peak now or will be there within just a few years. That certainly sounds a lot scarier.

Today we have a basic peak oil article—a primer on the subject. It's the first of a two-part series adapted from the works of Richard Heinberg, a journalist, educator, and author, and one of the world's foremost thinkers about the coming impacts of peak oil. Part 1 presents the evidence that peak oil will hit us sooner rather than later. Part 2 — US Oil Wars — lays bare the current approach of trying to use military dominance to ensure a continuing supply of petroleum in this country. Part 2 also describes some better options for dealing with the end of the oil age.

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Peak Oil and Options for a Post-Carbon World, pt 1by Richard Heinberg

It's important that we have an accurate picture of where we are relative to peak oil so we can take actions that make sense and can have some effect, given the context.

There is an approaching "perfect storm" of global problems that we will be facing over the next couple of decades, including:

a peak in global oil production ("peak oil");

continued population growth;

declining per capita food production;

climate change, pollution, habitat destruction, loss of biodiversity;

unsustainable levels of US debt;

international political instability.

This article will deal mostly with peak oil, but some of the other issues are relevant.

Peak Oil Article

OIL, POPULATION INCREASE, AND FOOD PRODUCTION

Over the last century, we have used oil to increase the carrying capacity of planet earth and increase our population:

We use oil-powered vehicles to carry resources from where they're abundant to where they're scarce so that we can, for instance, build cities in the middle of deserts, where people really shouldn't be living.

We have increased the global human population by over 500% in just the last 150 years. We were at fewer than 1 billion in 1800 (toward the beginning of the Industrial Revolution), and we passed 6 billion in the 1998-1999 timeframe. In the next half-decade after that, we added another 400 million—essentially a North America's worth of people. Unfortunately, we haven't added another North America's worth of resources or support infrastructure.

The rate of population growth is beginning to taper off, but the overall numbers are very worrisome, given the fact that per capita food production is declining. The reasons for the decline include:

Decline in amount of arable land — We had been increasing the amount of farm land by clearing forests and irrigating dry land, but that strategy has reached a point of diminishing returns. Today we are paving over farm land and losing acreage in some areas to soil salinization and erosion.

Green Revolution burnout — The great yield enhancements achieved through the use of chemical pesticides, fertilizers, and increased irrigation have peaked. In some cases, yields are starting to decline again.

Collapse of ocean fisheries — Many ocean fisheries are near collapse or have collapsed.

Environmental problems like global warming are likely to exacerbate food production problems. The high levels of US debt and inherent economic instability will mean there won't be a lot of free-flowing cash available to fix these problems once they become more obvious to everyone.

OIL AS A DETERMINING FACTOR IN THE U.S. ECONOMY

America, which today has become notorious as the world's biggest importer of oil, actually still produces much of its own oil. In fact, it is still the world's third largest oil producer. Moreover, it was once the world's largest exporter of oil. But, oh, how times have changed. The chart below compares some of the characteristics of the US in 1950 and today.

THE U.S. IN 1950

THE U.S. TODAY

World's foremost oil producer and oil exporter

World's foremost oil importer

World's largest exporter of machine tools and manufactured goods

World's largest importer of manufactured goods, with manufacturing jobs now fleeing to other countries

Self-sufficient in nearly all resources

World's foremost importer of non-petroleum resources

World's foremost creditor nation

World's foremost debtor nation

Much of this is certainly the result of bad management over the last several decades, but much of the cause is rooted in the depletion of US reserves of the resource that made the United States the most powerful nation in history—oil.

Peak Oil Article

PEAK OIL IN THE U.S.

When it comes to oil, the US is the most explored place on the planet. More oil wells have been drilled in the continental US than in the rest of the world. So, if you want to understand the oil industry, petroleum geology, and how it's going to go globally, the experiences in the US can be seen as a template.

DEFINITIONS

Oil discovery — the identification of new oil reserves (but without extracting them from the ground)

Oil extraction / oil production — the removal of oil from the ground for conversion into fuels and other products

Figure 1 shows that US oil discoveries peaked around 1930 (blue arrow), with the discovery of huge oil deposits in eastern Texas. But discovery of new oil then began to decline very quickly, and very little oil is being discovered in the US today. With the exception of relatively small amounts of oil in Alaska and the Gulf of Mexico, experts have largely concluded that it's simply not worth investing any more money in the hunt for new oil in the US.

Figure 1. U.S. Oil Discovery and Oil Production

About 40 years after the US hit its oil-discovery peak, the country hit its oil-production peak (in 1971). The US discovery peak had been successfully predicted (to within 12 months) 14 years earlier by geologist M. King Hubbert.

Peak Oil Article

FACTORS FORPREDICTING PEAK OIL

The phenomenon of oil-extraction peaks has been well studied by now. There are several factors that relate to the physical and economic practicality of getting oil out of the ground at any particular location:

Oil deposits vary in quality (grade of oil), which affects how easily the oil can be refined.

There are different levels of difficulty for extracting a given field of oil from its surrounding geological formations.

Different levels of effort and energy are required to extract oil from various oil fields; thus, the economics of oil extraction vary from field to field. On the oil-refining side, poor-quality oil is harder to convert into useful products like gasoline.

In any given region, it's natural to first go after the "easy oil"—the best quality oil in the most easily extracted locations and geological formations. After about the first half of the oil has been extracted, what remains gets more difficult to extract, and the rate of extraction hits a peak and then begins to decline.

DRILL, DRILL, DRILL

There is a resurgence of drilling fever in the US, with coastal areas and the Arctic National Wildlife Refuge the primary targets. Much controversy surrounds these proposals. Supply-siders say "we must drill!"; environmentalists say "we must not!"

Over the long run, it is possible that these new sources could bring about 2 million barrels per day (MBD) online. That's a significant amount, but remember, that would be a maximum production rate lasting only for a few years and would occur until the middle of the next decade. Prior to and after the peak production years, actual flow rates would be much less than 2 MBD.

Still, this additional amount of oil would be substantial over the lifespans of the fields. Unfortunately, declines in other (current) fields over that same period would more than wipe out the gains from the new fields.

A bigger problem is that the US uses about 25% of the world's oil production—with 2/3 of that imported—but has only 2% of estimated global oil reserves. That's math that won't work, now, next decade, or ever—no matter how much new domestic drilling we take on.

To be clear, we at GP are not saying we shouldn't drill in ANWR and off the coasts. We are saying that doing so will not fix our peak oil problem—let alone free us from imported oil. It might even be worth considering whether it would be smart to leave that oil in the ground for the day when it's worth $400 a barrel.

-- Grinning Planet

The actual peak of the extraction rate for a given field can vary slightly relative to what percentage of the field's oil remains, but the bell-shaped curve used to represent oil extraction rates seems to have held true for every oil reservoir, oil region, and oil-producing country—and will undoubtedly hold true for the world as a whole. The only question is exactly when the global production peak will occur.

Peak Oil Article

WHEN WILL PEAK OIL HIT?

Figure 2 shows actual and projected petroleum production, by region. One can see the contraction of oil use in the late 1970s and early 1980s (blue arrow) as a result of the OPEC embargo, price shocks, and subsequent conservation measures. Since the mid-1980s, demand and production have recovered and soared.

Several top analysts estimate that peak will occur in 2011-2012 (red arrow), with only minor production increases between now and then. A few even say the peak already occurred—in 2005/2006—with total "oil" production since then having seen minor increases because of increases in non-petroleum liquids production.

Figure 2. Global Oil Production

Chris Skrebowski, a consulting editor for Petroleum Review and a researcher for the Energy Institute in Britain, has noted the alarming falloff in discoveries of large oil fields (from which a majority of the world's crude flows). Skrebowski notes that "we would probably have to go back to the early 1920s to find a year when fewer large oil discoveries were made." Skrebowski is currently predicted that the global oil supply will peak in 2011 or 2012.

It is widely accepted that global oil discoveries peaked in 1963-64. If we remember that the lag time between the peak in US oil discovery and the peak in US oil production was 40 years, we can use that as a rough predictor of when the global oil-production peak will hit, and it predicts the peak will be soon.

DRAWING DOWN

At this point, we are now extracting about 5 times as much oil each year as we discover.

Peak Oil Article

MORE EVIDENCE FOR PEAK OIL HAPPENING SOON

In Figure 3, the green bars show that up until 1980, the world was discovering more new oil deposits than it was using in production, and thereafter (the red bars) the world began eating into its reserves to meet demand. The black line with the yellow dots plots the number of wildcat wells being sunk in search of new oil. It shows that industry responded to the declining discoveries in the 1970s and early 1980s by sharply increasing their drilling efforts—until they figured out that the additional drilling was not producing results.

A FIT OF PEAK

Of the 65 largest oil producing countries in the world, 54 are past their production peaks.

Figure 3. Net Oil Discovery Minus Production

Some economists predict that peak oil is still far away because rising oil prices rise will provide incentive for oil companies to go out and find additional oil. This data calls such claims into question—there may not be that much oil out there to find! And even with today's record-high oil prices, the last few years have not seen any significant increases in production.

There is no question that more oil will be found in the future, but it's likely to be smaller fields and oil of lower quality.

The International Energy Agency (IEA), which is sort of the global equivalent of the US Department of Energy, tends to be very optimistic in its oil projections. But even they are now revising future-production estimates drastically downward and noting that even moderate production increases will only happen with significantly higher levels of investment.

Some of the reasons the IEA gives for predicting future problems are:

we've already captured much of the "low-hanging" fruit (the "easy oil");

older oil fields are mature and declining;

new discoveries are smaller fields;

the oil industry is extracting oil from fields more quickly;

more effort is being expended just to offset oil depletions;

global reserves have been overstated for political reasons.

The last point about declared oil reserves being overstated is worth looking at further. The reason that OPEC countries have done this is that, under OPEC rules, member countries have previously been allowed to export oil based on their level of stated reserves. This created an incentive for OPEC countries that wished to boost their exports to over-report their reserves.

QUOTH THE MAVEN

In 2003, Jon Thompson, president of ExxonMobil, stated:

"We estimate that world oil and gas production from existing fields is declining at an average rate of about 4 to 6 percent a year. To meet projected demand in 2015, the industry will have to add about 100 million oil-equivalent barrels a day of new production. That's equal to about 80 percent of today's production level. In other words, by 2015, we will need to find, develop and produce a volume of new oil and gas that is equal to 8 out of every 10 barrels being produced today. In addition, the cost associated with providing this additional oil and gas is expected to be considerably more than what industry is now spending."

The world is far off pace Thompson said would be required for supply to keep up with demand.

Another measure of OPEC's ability to meet higher oil demand in the future is spare production capacity—how much they could ramp up production if they wanted to. The IEA notes that since late 2002, spare oil production capacity has been below the 3-4 MBD that has traditionally been regarded by many analysts as a key barometer of market tightness, and well below the average levels of spare capacity evident in the past decade. OPEC's spare production capacity is now nearly non-existent—they are currently producing almost flat-out from their existing wells.

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Peak Oil Article

GRINNING PLANETWRAP-UP

This is some pretty convincing evidence that the oil crunch—and side effects like higher gas prices—are likely to continue to worsen. And because our current lifestyles, level of prosperity, population, and food production are all tied to the availability of cheap oil, the arrival of peak oil could produce a disastrous economic shock. High gas prices may turn out to be a very minor problem, comparatively.

Richard Heinberg is a journalist, educator, and analyst. He has lectured internationally and is widely respected as one of our most clear-headed thinkers about energy issues and their impact on economies and societies.

The 20th century saw unprecedented growth in energy availability, food production, and population. The 21st century will be the era of declines—in oil, natural gas, and coal availability; in critical minerals and ores, such as copper and platinum; in fresh water availability and grain harvests; in climate stability; in economic growth; and, ultimately, in global population. To adapt to this profoundly different world, we must begin now to make radical changes to our attitudes, behaviors, and expectations. A combination of wry commentary and sober forecasting on subjects as diverse as farming and industrial design, this book tells how we might make the transition from The Age of Excess to the Era of Modesty with grace and satisfaction, while preserving the best of our collective achievements.

Since oil is the primary fuel of global industrial civilization, its imminent depletion is a problem that will have a profound impact on every aspect of modern life. Without international agreement on how to manage the decline of this vital resource, the world faces unprecedented risk of conflict and collapse. The Oil Depletion Protocol proposes a unique accord whereby nations would voluntarily reduce their oil production and oil imports according to a consistent, sensible formula, enabling our energy transition to be planned and managed over the long term.

The world is about to run out of cheap oil. Even if we begin to switch to alternative energy sources, we will have less net energy each year to do all the work essential to the survival of a complex society. The Party's Over puts this momentous transition in historical context and outlines the drastic change we are about to undergo. (Revised edition, 2005)

If the US continues with current policies, the next decades will be marked by war, economic collapse, and environmental catastrophe. Resource depletion and population pressures are about to catch up with us, and no one is prepared. The alternative is to "powerdown," a strategy that envisions lower per-capita resource usage in wealthy countries, more alternative energy, and a humane but systematic lowering of human population over time. Change is coming; can we manage it sanely?

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"OPEC, over the last 20 years, has not managed to add any additional capacity. So we're in a world today where we're going to need a vast amount of additional energy, and we're utterly dependent on countries that in the past generation have added absolutely no additional capacity."

— Steven Lee,oil analyst

VIDEO RELATED TOPrimer on Peak Oil

HEINBERG ON HOW TO KEEP CIVILIZATION FROM GOING HINDENBERG
— An excellent talk from top Peak Oil educator Richard Heinberg speaking at a Google Tech Talk. He outlines five axioms of sustainability that we must be aware of to avoid an eventual systemic collapse. Axiom 1: A society that continues to use resources unsustainably will collapse. Many more good points in the talk, with good graphs, etc. At Energy Bulletin. Go there